Analyzing Zara's Business Environment and Stakeholder Strategies

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THE BUSINESS ENVIRONMENT
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Executive Summary
The aim and purpose of the current report are to analyze the operating environment of a UK
based MNC Zara and discuss in detail the stakeholder management strategies applied by the
organization. Zara is one of the world’s leading clothing manufacturers that first started off as
humble designing and tailoring store back in 1974.
It is evident that Zara is operating under the influence of both of its macro and micro
environments elements keeping a close focus on the interests of all its primary and secondary
stakeholders. Also, the operating environment of Zara upholds the value for social culture and
environmental sustainability. The report, also, presents an in-depth analysis of the macro and
micro environment that impacts the operations of the company and understand the ways the
organization responds to the interest of all of its stakeholders.
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Table of Contents
Introduction......................................................................................................................................4
Nature of environment Zara is operating in.....................................................................................4
Impact of environmental forces on the organization both at the macro and micro level................5
Micro Environment:.....................................................................................................................5
Macro Environment:....................................................................................................................6
The significance of the impact of environmental forces at an organization, market sector or
industry level...................................................................................................................................7
The requirements of a variety of stakeholders to a chosen organization.........................................8
The effectiveness of the responses of organizations to policy actions taken by key stakeholders..9
Recommendations............................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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Introduction
Learning the business environment for any organization is important and speaks a lot about the
working culture and the value given to each stakeholder of the company. It is important for any
organization to gain a sustainable competitive advantage that is possible with a working
environment and parallel participation of every stakeholder. Managing the stakeholders and
maintaining a positive work environment with the right leadership is important and necessary.
The aim and purpose of the current report are to analyze the operating environment of a UK
based MNC Zara and discuss in detail the stakeholder management strategies applied by the
organization. The report, therefore, presents an in-depth analysis of the macro and micro
environment that impacts the operations of the company and understand the ways the
organization responds to the interest of all of its stakeholders. Furthermore, the report focuses on
evaluating the effectiveness of the responses of the organization's policy actions as taken by the
key stakeholders.
Nature of environment Zara is operating in
Zara is one of the world’s leading clothing manufacturers that first started off as humble
designing and tailoring store back in 1974. Under the main brand of the Inditex group, Zara has
made its evolution towards growth and success. The brand extensively follows a distinctive
design-on-demand business model that has influenced its leadership group to operate the
business keeping in mind the need of the stakeholders as well as the society it is in touch with
(Schaltegger et al. 2016.). The brand is more inclined towards a mission of contributing towards
sustainable development of society and environment. The brand reaches out to a vast number of
cultures across the world. In its operations in all the parts, management of Zara has clearly
focused on maintaining the social culture while upgrading its fashion and apparel statement
influencing the local society to use of its products despite keeping the non-agreeable price.
The brand has also kept its focus on environmental sustainability with all its stores managing to
reduce its total electrical consumption by 20%. Zara has therefore taken into account the interests
of its key stakeholders including investors, customers and local diversity (Prajogo, 2016).
The business operations of the company are vertically integrated where it manages all of its
business operation starting from designing and manufacturing to sales and feedback. The brand
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relies very little on outsourcing of operations until the PR and HR services. Because of the
vertically integrated business operations structure, Zara has achieved fluid communication
between all its departments and stakeholders making the entire process much easier to operate.
This, therefore, reflects in a democratic leadership that is being followed by open workplace
culture and a positive organizational culture. Also, the brand believes in integrating advanced
technology to meet the parabolic market fluctuations. The close communication between the
supply chain department and the rapid product replacement cycle is also a strong point for Zara
allowing the brand to focus on other business operations.
Overall, Zara is operating a highly competitive external environment with a fluently designed
internal environment allowing the brand to maintain a sustainable business development
Impact of environmental forces on the organization both at the macro and micro level
The impact of both macro and microenvironment forces can be seen in any organization,
especially those operating internationally.
Micro Environment:
The microenvironment analysis impacting Zara's business operations include,
● Supplier: Recently, the number of suppliers supplying to Inditex has doubled off that it
was before. Out of its 1300 external suppliers, 50% of the products come from Spain
while 26% comes from the rest of Europe. The Asian and African countries contribute up
to 24% of the production line up and the rest from other parts of the globe. In order to
reduce the cost of the operation, manufacturing of the basic products are outsourced to
Asia and Turkey where the labour cost and raw material costs are low (DeFusco et al.
2015).
● Public: A bit more than half of Zara's shares are owned by CEO of Inditex, I.e. 50.01%.
The rest is divided among 60,000 of its other shareholders.
● Intermediaries: With the evolution of social media marketing and wireless technologies,
Zara has never backed off on utilizing such platforms for marketing (Aithal, 2016). The
stores use DOS based POS system that is supplied by IBM.
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● Competitors: Being into a fashion brand, Zara has a number of competitors who have a
direct influence on the brand's business operation. These are Mango, Topshop, and River
Island etc.
Macro Environment:
The elements of a macro environment that influence the business operations of Zara can be best
understood by PESTLE analysis. It includes,
● Political: After the major accident in the Bangladesh factory, the company has signed a
safety agreement on fire and building safety. Also, the company will face certain impacts
due to the Brexit though only a mere percentage of its sales and production will be
impacted (García-Álvarez, 2015).
● Economic: The company has been operating in many developing countries with
fluctuating economic situations. Also, the economic crisis that hit Europe has enforced
certain policies to be undertaken by Zara. The company has increased its minimum wage
structure from £6.19 to £6.31.
● Social: With a reduction of 5-6% in the population of 16-24 years age group, Zara has
seemed to lose a big proportion of its target audience (Anwar, 2017). Also, also the
people in the age group of 16-24 mostly prefer to shop from brands that come up with
collection more than once in a season.
● Technology: Advanced wireless and enterprise communication system ensure flawless
operations between the stores. Also, the vendors of the software platform for supply
chain management, inventory management, customer management and loss prevention
has also made it easier for Zara.
● Legal: There will be a great impact in the export/import and other laws as the member of
UKIP MP's in Parliament, the main pushers of Brexit, rises. This would directly impact
the operations of Zara.
● Environmental: The weather cycle does disrupt the natural pattern of people's shopping
traits. Also, Zara showcases its new collections once every new season.
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The significance of the impact of environmental forces at an organization, market sector or
industry level
It is mandatory to work within the framework of environmental forces for every organization
including Zara. The significance of each micro and the macro element of the environment can be
seen from the way its shapes the business operations, especially for businesses operating
internationally where the elements differ. The significance of the impact of environmental forces
on Zara's business operation indulges the following,
Political and legal factors
Political and Legal frameworks of every operating country are different in certain terms. Zara
has made it clear to operate in different countries modifying its basic business and stakeholder
policies to be redesigned based on the environment of the foreign market (Viswanadham, 2018).
This significantly made Zara to focus on managing the interest of its stakeholders relevantly.
Impact of economic and social factors
The current state of the economy and social acceptance impacts and influences the business
operation of Zara in a significant way. The pricing of Zara's product is generally high appealing
to a particular segment of society. Also, the brand is more inclined towards sustainable
development of society and culture based on its modified fashion statements.
Impact of competitors
Impact of competitors is another significant environmental factor that influences decision
making and business operation of Zara. Rising competitors like Mango, Topshop, River Island
etc enforces Zara to come up with exclusive designs and a more number of seasonal releases.
Different environmental factors influence every organization differently. Zara has its motto to
bring high fashion at a low price mantra where it holds a major market segment resulting in
retailing right next to other luxury brands showrooms. Along with an ace locations strategy, the
brand implements its own advertisement and marketing strategy at an industry level. However,
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Zara is seemed to struggle more with maintaining the supply and demand balance during peak
seasons (Lopes et al. 2017). As Zara has its major distribution centre in Spain, a lot more
distribution needs to be opened across the globe.
The requirements of a variety of stakeholders to a chosen organization
It is an absolute necessity for an organization to have a variety of stakeholders to be aware of the
different requirements and problems and the development of plausible solutions. The needs and
requirements of the stakeholders represent the opinions of the business or enterprise operations
level that is users, acquirers, customers, and others.
Stakeholders Requirements
Employees The employees are the primary stakeholders of the company who are required
to run the entire business operations of Zara. It is important to address the
needs of the employees and the members of the company to keep them
motivated delivering their work with better productivity.
Clients The end clients are the customers who will be using the latest crafted fashion
from Zara. They are entitled to purchase and use the most end products. The
organization is bound to take care of the interest and needs of the customers
as the key stakeholders of the company.
Suppliers Zara is highly dependent upon its suppliers as most of its end products are
manufactured across the globe and then shipped to the customers through
retail shops. The suppliers of raw material and end products are the key
stakeholders of the company whose interests are to be taken into account
(Eskerod and Jepsen, 2016).
Shareholders Shareholders have a direct influence on the profit and loss of the company.
The increasing value of Zara’s shares impact the investment of its
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shareholders.
Community Community or society is directly influenced by fashion. As a fashion brand
the company is more inclined towards the corporate social responsibility and
sustainable development of the society.
Governance
(Environment)
The operational environment of any organization has an impact over the
environment it is in touch with. It is the responsibility of the organization to
address the sustainability of the ecosystem and environment.
The effectiveness of the responses of organizations to policy actions taken by key
stakeholders
Zara focuses more on sustainable social development they have a more holistic look towards
sustainability and believe social sustainability is the way further. It is a more complete way
which conceptualizes nature and social together.
Zara has an elite club of visitors and purchasers, these stakeholders have a lot of requirements
such as the quality of the cloth, cleanliness of the store, the attitude of the staff and managers and
the most important locations (Bourne, 2016). Like all high end retails, Zara focuses on
maintaining the quality of their stores as per the requirements of their stakeholders the clients.
Zara chooses high-end locations in the city to open up stores to reel in these clients. Thus, Zara’s
responses effectiveness is pretty on point looking at the efficient growth in business.
Recommendations
After a thorough evaluation of the business environment Zara is operating and the ways it
addresses the interest, there are few recommendations that would fit in for the organization.
● A majority of Zara's production and manufactured products come from Spain. This
makes it difficult for the brand to keep the demand in many other countries. It is
recommended to increase the supply chain in other countries based on the demand
(Wrigley and Straker, 2016).
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● It is also recommended to Zara not to incline its entire mission statement to the
sustainable development of society. CSR can be a part but the brand needs more focus
into building competitive strategies and plans to stay ahead of its rival in its major
business areas.
Conclusion
As an overview of the entire study, it is evident that Zara is operating under the influence of both
of its macro and micro environments elements keeping a close focus on the interests of all its
primary and secondary stakeholders. Also, the operating environment of Zara upholds the value
for social culture and environmental sustainability. The study is therefore sufficient in analysing
and understanding all the environmental forces in which Zara is operating and how it influences
its business operations. The study is also sufficient in drawing a stakeholder analysis and how the
company addresses the needs and interest of them.
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References
Aithal, P.S., 2016. Study on ABCD analysis technique for business models, business strategies,
operating concepts & business systems. International Journal in Management and Social
Science, 4(1).
Anwar, S.T., 2017. Zara vs. Uniqlo: Leadership strategies in the competitive textile and apparel
industry. Global Business and Organizational Excellence, 36(5), pp.26-35.
Bourne, L., 2016. Stakeholder relationship management: a maturity model for organisational
implementation. Routledge.
DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Anson, M.J. and Runkle, D.E., 2015. Quantitative
investment analysis. John Wiley & Sons.
Eskerod, P. and Jepsen, A.L., 2016. Project stakeholder management. Routledge.
García-Álvarez, M.T., 2015. Analysis of the effects of ICTs in knowledge management and
innovation: The case of Zara Group. Computers in Human Behavior, 51, pp.994-1002.
Lopes, C.M., Scavarda, A., Hofmeister, L.F., Thomé, A.M.T. and Vaccaro, G.L.R., 2017. An
analysis of the interplay between organizational sustainability, knowledge management, and
open innovation. Journal of Cleaner Production, 142, pp.476-488.
Prajogo, D.I., 2016. The strategic fit between innovation strategies and business environment in
delivering business performance. International Journal of Production Economics, 171, pp.241-
249.
Schaltegger, S., Lüdeke-Freund, F. and Hansen, E.G., 2016. Business models for sustainability:
A co-evolutionary analysis of sustainable entrepreneurship, innovation, and transformation.
Organization & Environment, 29(3), pp.264-289.
Viswanadham, N., 2018. Performance analysis and design of competitive business models.
International Journal of Production Research, 56(1-2), pp.983-999.
Wrigley, C. and Straker, K., 2016. Designing innovative business models with a framework that
promotes experimentation. Strategy & Leadership, 44(1), pp.11-19.
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